At SplashX: Business imperative vs policy incentive

Steven Loeb · September 15, 2017 · Short URL:

Healthcare investors were asked what they want to see before they invest in value based care

Last night, Vator teamed up with HP to hold the SplashX: Invent Health event, where we asked some of the most prominent VCs, entreprenuers and members of the health community to give us their thoughts about the state of the healthcare system.

The topic covered was value-based care: the road to accountable healthcare economics. Value-based care is when caregivers are paid on the basis of quality vs per service. But how is quality measured? How can caregivers deliver quality without patients also doing their part? There's a lot of challenges to this model, but a lot of upside for everyone.

Our first panel, moderated by Dorothy Vinsky (Royse Law Firm) and Archana Dubey (Global Medical Director, Hewlett-Packard) included Emily Melton ( DFJ Venture), Rick Moss (Partner, Better Ventures), David J. Kim, MD (CEO, DigiTx Partners), Lynne Chou O’Keefe (Partner, Kleiner Perkins).

The first question of the night, from Dubey, was what these investors want to see when companies pitch to them.

"What is important to you, from an investment perspective, that is driving the value base?" she asked.

Melton went first, starting with an answer we've heard from a lot of VCs: it's all about the team.

Healthtech startups have to endure a 'slog'

"First and foremost, I'd say we invest in companies, but companies are built by people. So, what's really critical in the early stages is, 90 percent of our investments are in the Series A, is that we're backing a team that we believe is mission driven, that's doing it for the right reasons and has the grit and the motivation that's going to be persistent. That's always true of any kind of company, but in healthcare it's particularly true, because this is a slog. You don't get a lot of great reinforcement early on, so making sure that the individuals who are starting these businesses have what it takes to go through those cycles is really, really important. So we spend a lot of time understanding what motivates and what drives them, how do they define success because that's the key component to any successful business, particularly in this sector," she said.

Beyond the founders, though, she discussed the healthcare system itself, and how much of it is driven by policy, while what she wants to see is a business imperative behind these companies. 

Wanted: Business imperative

"I think one of the challenges is that the real value of healthcare is often hidden behind a lot of these acronyms or policy changes. I think one of the things I really am excited about, and what I want, is to see it's not driven by a policy incentive, but a business imperative. If you look at what happened with EHRs or others, they were driven by policy incentives but then no one uses it, no one really cared. There's things that go into value based care, we're taking on risk, and there's lots of different definitions, but is there a business imperative, is there a reason that people are going to do it that doesn't need to be subsidized, that doesn't need to be regulated or forced upon them? Obviously you can appreciate and recognize that ecosystem, but you have to have something that's beyond it to believe this is going to build a big business."

O'Keefe had a slightly different take, giving more credence to policy and its ability to get a complex space moving faster and in the same direction.

"I actually believe in the policy. I do like when there are carrots and sticks because another thing about healthcare, which I think Emily was intimating, is that nothing happens quickly and I think policy can help things go a bit more quickly, and then we can all argue about is it the right direction or not. I do think at least it aligns in an industry where there is a very complex ecosystem. You move left, someone else moves right, someone else moves right, and you really have to understand the ecosystem and the chain. So, when there is at least a policy movement, I think having those carrots and sticks is helpful."

She did also agree, though, that policy isn't enough and that, "There has to be a great business imperative."

"You have to be, if you're going after providers, payers, employers, one or top two priorities because otherwise you're lost in the mix of everything else. We all know that things take, if you think of business cycles, 12 to 18 months, at least, for some of these large players. And then the ability to have a scalable solution. I never say that technology is the end goal. People ask, 'What do you think about AI?' and I say, 'I think that's the wrong question, inherently. What's the business problem? What is the solution? What's the user need here? And then how is technology enabling that to happen?' Sometimes I think, especially in the valley, we tend to think about technology and I think, especially in healthcare, you really have to be thinking about the business model and user need and then how does technology wrap around that and how can you do it in a scalable way? I do not believe that technology will solve all. We will always have doctors and we will have service models."

Moss spoke next, noting that value-based care, "has the potential to be a big societal shift that's meaningful and with lots of opportunity."

"All of us, as investors, look for the shifts. The shift to mobile computing, the shift to the Internet, the sequencing of the genome, the shift to electric cars, the shift to clean energy. And value based care has the potential to be one of those shifts. We have a system built on volume and it could shift to a system built on value, and it would have profound implications. We all kind of look for those things kind of things that may be in the early stages of happening so we can help some of the innovators make it happen and capitalize on it. So that's a big reason we're excited about it. In terms of what we look for, the more we do it, the more we realize that aligning all the different interests and all the different parties is really hard and important. So we look for people who have the experience and the tenacity to align payers and providers and physicians and patients and all of their different personal and economic interests, because that's really hard."

Kim spoke last, again bringing up the team and the importance of their expertise in terms of the problem they are solving. 

"People with domain knowledge is really important to me when I have a conversation with an entrepreneur because they're positioned to see some of the business cases, some of the unmet needs and some of the problems that need to be solved. Especially in a value based situation, where you're looking for efficiency, you're looking for those things that, why are people doing this? Clearly it's not leading to better clinical outcomes. Since they've lived that problem on a daily basis, they have a better idea of how to best address it. That's one of the things I usually like to have conversations around," he said.

"I totally agree that it's not investing in the technology, per se. I'm trying to invest in that solution to the problem that's affecting people on a daily basis. If it includes AI, or if it includes really interesting diagnostics, if it includes algorythms, great. I think it starts with that understanding what the issues are and, typically, people who live it on a dial basis, they have a pretty good idea."

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Roger Royse is a partner in the Palo Alto office of Haynes and Boone, LLP and practices in the areas of corporate and securities law, domestic and international tax, mergers and acquisitions, and fund formation. He works with companies ranging from newly formed tech startups to publicly traded multinationals in a variety of industries.

Roger is a Fellow of the American College of Tax Counsel and former chair of several committees of the American Bar Association Sections of Business Law and Taxation. Roger has been an instructor or professor of legal, tax and business topics for the Center for International Studies (Salzburg, Austria), Golden Gate University School of Law and Stanford Continuing Studies.

Roger is a nationally recognized authority on agtech – the technology of food production - and the legal considerations for companies in this industry. Roger is also the author of Dead on Arrival: How to Avoid the Legal Mistakes That Could Kill Your Startup and has been interviewed and quoted in the Wall Street Journal, Forbes, Fox Business, Chicago Tribune, Associated Press, Tax Notes, Inc. Magazine, Nikkei Asian Review, China Daily, San Francisco Chronicle, Reuters, The Recorder, 7X7, Business Insurance and Fast Company.

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Better Ventures provides funding and support to technology startups building innovative solutions to big and important problems, from work and education to health and sustainability. Given the magnitude of the these problems and the enormous market opportunities they represent, it takes the best and brightest minds armed with the best resources to address them. These are the people we seek to back – entrepreneurs committed to using the tools and methodologies of the modern technology startup to build world-changing companies that make money and do good. We're thinking big and expecting big results, and so are the entrepreneurs we back.



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Archana Dubey, MD

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